Two topics that impact everyone – health and money.
Money is taught to us as a science like physics, with rules and laws. Need to balance that by teaching it like psychology, with emotions and nuance. History is also a major contributor, and should be factored in.
Nobody is crazy, even though their actions may look crazy to you. They look crazy because you are a different person, with different life experience, which leads to differing values, in a different situation, with different requirements.
Your personal experiences represent next to nothing in the grand scheme of things, but those same experiences dictate how you think money works for the most part. Fear and uncertainty for example can have a profound effect on how you view money, and no amount of studying can create the same effect for someone who hasn’t experienced it directly.
Luck and risk – the accidental impact of actions outside of your control can be more consequential than the ones you consciously take.
We prefer simple stories, and like to paint ourselves in the most favorable light, so luck is dismissed when analyzing successes. We don’t view things from a probability standpoint, separating choices from outcomes.
Modern Capitalism is a pro at two things – generating wealth, and generating envy. We need to train ourselves to not allow the goalposts to move as we acquire more wealth.
Remember that some things aren’t worth risking no matter how large the potential gain. Reputation, freedom, family & friends, happiness, being loved.
Warren Buffet – current net worth is $84.5B. $81.5B was generated after he turned 65. The power of compounding.
Build a base of capital as quickly as possible, then let it compound for as long as possible. This is the most straight-forward path to wealth.
Getting money requires taking risks, being optimistic, and putting yourself out there.
Keeping money requires the opposite. Humility and fear that what you made can be taken away from you just as fast. Survival mentality is key here.
Be optimistic about the future, but paranoid about what will prevent you from getting to the future. Leads to increased odds of survival.
Long tails – the farthest out distribution of outcomes – can create outsized returns. You don’t have to be right more than you’re wrong to be financially successful.
Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years in between spent on cruise control.
It’s not whether you’re right or wrong that’s important, but how much money you made when you were right, and how much you lose when you’re wrong. George Soros.
The ability to do what you want is the highest dividend money can pay. Freedom. Money’s greatest intrinsic value is it’s ability to give you control over your time.
- To be happy, you should try to work as hard as you can to make money to buy the things you want.
- It’s important to be at least as wealthy as the people around you, and if you have more than they do, that’s a real success.
- You should choose your work based on your desired future earnings power.
- Focus on quality friendships
- Being part of something bigger than yourself
- Spending quality, unstructured time with your children.
People want wealth to signal to others that they should be liked and admired. You want respect and admiration from others. Material goods almost never bring that admiration from the people you’d actually want it from.
Humility, kindness, and empathy are much more likely to bring you the respect and admiration you crave, and from people with the right kind of values.
Wealth is what you don’t see. Avoid using outward appearances as a gauge of financial success.
Wealth is an option not taken to buy something later. It’s value lies in offering options, flexibility, and growth.
Wealth is the accumulated leftovers after you spend what you take in.
Spending beyond a pretty low level of materialism is mostly a reflection of ego, a way to spend money to show people that you have it.
Spend less by desiring less. Desire less by caring less about what other people think about you.
Odds of making money in the US Stock Market – 1 Year – 68%, 10 Years – 88%, 20 Years – 100%.
Things that have never happened before happen all the time. Scott Sagan.
Experiencing specific events does not necessarily qualify you to know what’s going to happen next.
The most common plot of economic history is the role of surprises. Realizing the future might not look like the past is a special kind of skill that is not generally looked highly upon by the financial forecasting community.
The further back in history you look, the more general the takeaway should be. People’s relationship between greed and fear, how they respond to stress, and how they respond to incentives are constant (components of human nature).
The biggest gains happen infrequently, either because they don’t happen often or because they take time to compound.
You have to take risk to get ahead, but no risk that can wipe you out is ever worth taking. You have to survive to succeed.
People aged 18 -68 underestimate how much they will change in the future. Daniel Gilbert.
Sunk costs – make our future selves prisoner to our past, different, selves. Avoid them.
Most things are harder in practice than they are in theory. We’re not good at identifying the price of success.
When investors have different goals and time horizons, prices that look ridiculous to one person can be perfectly sensible to another.
Money chases returns to the greatest extent that it can.
Bubbles – the result of more and more short term investors flooded in to try and make a quick profit.
Consumer spending is socially driven. Subtly influenced by people you admire, and done because subtly you want people to admire you.
Be very aware of your own time horizon, and do not be persuaded by the behaviors of people who are clearly playing a different game than you.
Optimism the belief that the odds of a good outcome are in your favor. Usually gets under-appreciated and accused of being oblivious to risk.
Pessimism sounds smarter, but is usually wrong?
I am not an optimist. I am a very serious possibilist. Hans Rosling
Forecasts of outrageous optimism are rarely taken as seriously as prophets of doom.
Every group of people I ask thinks the world is more frightening, more violent, and more hopeless – in short, more dramatic – than it really is. Hans Rosling.
Pessimistic forecasts ignore that necessity is the mother of all invention. People adapt, and problems correct.
There are many things in life that we think are true because we desperately want them to be true. Appealing fictions. They are dangerous, and can make you believe almost anything.
We look for the most understandable causes for the events in our lives. But we are inevitably wrong a lot because we know a lot less about how the world works than we think we do.
We seek out the illusion that the world makes sense, and will create stories to explain it, regardless of whether or not they are true. We are desperate for the world to make sense.
It’s very hard for us to accept how little we know, and how little we control.
Be ok with lots of things going wrong. You can wrong half the time and still make a fortune.
Uncertainty, doubt, and regret are all common “invisible” costs in the world of finance. If you want returns, you must be willing to pay these costs.
Independence, at any earnings level, is driven by your savings rate.
True success is exiting some rat race to modulate one’s activities for peace of mind. Nasim Taleb
Low interest rates lead to more borrowing for both business and personal purchases. Makes it easier for businesses and people alike to feel comfortable taking on debt.
Pent up consumer demand, increased productivity which came through wartime production, and easy credit led to a big boom after World War II. The economy was booming and all levels of the US social pecking order were advancing.
Inflation hit in the 70s, and when the economy came out of it, much of the equality that existed from after WWII had disappeared. The total economy was still growing, but the gains were accruing to the top levels who were business owners and investors.